FIRMS less than five years old have accounted for a quarter of all corporate exit deals in Wales over the last decade, according to research undertaken by Gambit Corporate Finance
Drawing on its own in-house expertise to provide values on non disclosed deals, Gambit’s in-depth analysis from 1999 to 2009 include trades sales, buy-ins, buy-outs, divestments, and although not strictly exits, flotations.
The research – which only includes indigenous businesses and not exit deals involving foreign- owned subsidiaries based in Wales – shows that during the 10-year period just over 25% of the exit deals involved companies less than five years old. In total 60% of the deals involved businesses less than 15 years old at time of transaction.
In terms of the types of exit, over 70% were trade sales, while 24% were management buy-outs.
The paucity of listed companies headquartered in Wales is highlighted by the fact that flotations during the period accounted for just 3.5% of all deals analysed – generating a combined value of less than 5% of all exits.
Trade sales and Alternative Investment Market listings peaked in 2007. Gambit said that by 2009 trade buyers had withdrawn from the market to conserve cash. And with the liquidity crisis the tap for finance to back management buy-ins and buy-outs , was effectively turned. Gambit’s research also provides an overview of on deals of £100m or more, as well as those below £100m.
The biggest deal was the acquisition of Welsh Water by not- for-profit Glas Cymru. It took on a massive £1.8bn debt, which was successfully refinanced through a bond issue, from Western Power Distribution in 2000 – following its acquisition of utilities group Hyder.
The total number of deals researched by Gambit was around 600, with a combined deal of around £11bn.
Service sector exits were concentrated in IT and communications (27%), Notable transactions in the facilities management arena included the flotation of Caerphilly-based PHS (which later de-listed in 2005).
From 1999 to 2004 deals were dominated by the manufacturing sector. However, since then there has been a shift to service sector.
Partner with Gambit Frank Holmes – who has acted on many of the biggest deals in Wales over the last decade – said: “Our research shows 2007 standing out as the busiest year of the decade for exits. During the year five companies were admitted to Aim, including Freshwater, Finsbury Food Group and Boomerang.”
And he said current business owners in Wales needed to focus more on succession planning.
“Succession is the most arduous and critical challenge a business owner will face, but also can be a great chance to maximise opportunities and create a multi-generational institution that see continuity of the founder’s values after his or her reign,” he said.
Director of CBI Wales David Rosser said of the research: “This analysis provide a picture of the dynamic nature of ownership and growth of companies.
“Achieving value for existing management, and positioning the company well for future growth, will be challenging in the next decade as the economy recovers.
“This will require early and structured thought and planning to the benefit of the entrepreneur and the Welsh economy.”
The chairman of Finance Wales and former chief executive of Biotrace, Ian Johnson, said: “ This unique survey focuses on a substantial number of Welsh companies which transferred ownership during a decade of extreme economic conditions and market change.
“The research highlights the vital need for businesses to embrace succession planning and thereby broaden shareholders’ choices and enhance economic value.”
Gambit has devised a new toolkit on succession planning for businesses in STEP – Successful Transition and Enterprise Planning